Chapter Overview — the Roadmap
🧭CENTRAL IDEA Beyond value maximisation for shareholders, businesses must provide goods & services in an ethically responsible manner. A proper governance process achieves goals through ethical decision-making and socially responsible management.
1
Ethics in business decisions
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2
Ethical issues Conflict of interest
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3
13 ethical situations
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4
CSR 5 principles
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5
Consequences
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6
Managing ethics Code · ICAP 5 principles
Key Definitions
📘Teal terms = high exam priority
The “discipline dealing with what is good and bad and with moral duty and obligation” — moral standards for judging right or wrong.
A set of moral principles guiding organisations on what is right, wrong and appropriate in the workplace.
An identifiable problem, situation or opportunity requiring a choice between actions judged right/wrong, ethical/unethical.
A person must choose whether to advance his/her own personal interests or those of others.
Buying or selling shares by insiders with material information not yet public — a conflict of interest.
A business’s obligation to make decisions & act in ways desirable to society’s objectives and values.
Behaving and conducting business ethically and with sensitivity towards social, cultural, economic & environmental issues.
A formal written statement of ethical behaviour, accessible to all employees, guiding all decisions.
Being straightforward and honest in all professional and business relationships.
Not compromising judgement due to bias, conflict of interest or undue influence.
Attain & maintain knowledge/skill to current standards; act diligently.
Respect the confidentiality of information acquired through professional & business relationships.
Comply with laws & regulations; avoid conduct that might discredit the profession.
International Federation of Accountants — issues ethics standards; ICAP is a member and has adopted its Code.
Core Concept — Business Ethics ≠ Social Ethics
📌WHY DIFFERENT?
Businesses compete; many decisions are taken for commercial reasons, regardless of their effects — e.g. closing loss-making operations despite redundancies.
FORMS OF MISCONDUCT Deceptive business practices · withholding important information from investors or consumers
WHO MUST MANAGE ETHICS? Every organisation — including non-profits — must manage the ethical behaviour of employees & other stakeholders.
Understanding Ethical Issues — 6 Areas of Behaviour
📌Recognising the issue = the most important step
1 Acting within the law — internationally,
following accepted codes (e.g. against bribery to win contracts)
2 Fair & honest dealing with suppliers and
customers
3 Acting fairly towards employees; concern
for their welfare
4 Respect & concern for communities where
the business operates
5 Respect for human rights — avoid suppliers
using child slave labour
6 Concern for the environment and
sustainable business practices
In business the choice often means weighing monetary profit against what a person considers appropriate conduct.
Conflict of Interest — One of the Most Common Issues
📌MEANING A person must choose whether to advance his/her own personal interests or those of others. Also: official responsibilities influenced by the potential for personal gain.
STUDY TEXT EXAMPLES
- Construction contract to a firm owned by the father of an influential person while under investigation — could shape the outcome
- Supply contract to a firm owned by the procurement manager’s close friend
INSIDER TRADING An example of conflict of interest — buying or selling shares by insiders holding material, non-public information.
13 Situations Involving Business Ethics
📌Managers’ actions shape the organisation’s moral standards
1 Taking things that do not belong to you
Unauthorised use of property / false pretences — even office postage for personal mail or exaggerated travel expenses
2 Saying things you know are not true
Discrediting co-workers for promotion; falsely assigning blame; inaccurate reporting of conversations
3 Giving or allowing false impressions
Salesperson lets customer believe weak cardboard boxes will hold tomatoes; car dealer hides an accident
4 Buying influence / conflict of interest
Official duties influenced by personal gain — supply contract to procurement manager’s close friend
5 Hiding or divulging information
Hiding drug side-effect results; taking trade secrets to a new employer
6 Taking unfair advantage
Misleading uneducated consumers with complex contracts → credit disclosure & car-leasing rules
7 Improper personal behaviour
Conduct outside work affects performance & reputation — a driver must avoid substance abuse
8 Abusing power & mistreating individuals
Supervisor humiliating employees in front of customers
9 Abusive or intimidating behaviour
Threats, false accusations, insults, yelling, ignoring — one of the most common problems
10 Permitting organisational abuse
Overseas operations — child labour, inadequate wages, excessive hours; firm can perpetuate or prevent
11 Violating rules
Breaking internal-control rules, even if inconvenient when serving customers
12 Condoning unethical actions
Not reporting a colleague embezzling by forging a cheque — tolerance is
itself unethical
13 Misuse of organisation time
Theft of time — activities not necessary for the job
EXAM USE Read the scenario → match the behaviour to one of these 13 labels.
Apply It — Self-test Scenarios
📌Scenarios & answers from the Study Text Self-Test
| Scenario | Answer | Why (ethical issue) |
|---|---|---|
| Car dealer sells a repaired, tested car without disclosing a past accident — ethical? (Q4) | FALSE | Giving a false impression / hiding information |
| Builder bribes the authority for extra floors but will buy 100 ambulances for a Trust (Q5) | FALSE | Not acting within the law; good cause doesn’t justify bribery |
| Carpet factory hires underage students below minimum wage “to help the poor” (Q6) | FALSE | Child labour & unfair wages breach human rights — not CSR |
| Cousin suits an HR vacancy — best course of action? (Q7) | Apply online, use referral | Pressuring HR or colleagues = conflict of interest |
Corporate Social Responsibility (Csr)
📌MEANING
- Business is an important part of society → earn profits in ways that meet society’s expectations
- Balance profit-making with initiatives that benefit society
- Build a positive relationship with the society it operates in
- CSR = acting ethically with sensitivity to social, cultural, economic & environmental issues
✓ ADVANTAGES OF BEING SOCIALLY RESPONSIBLE
✓ Bolsters image and builds the brand
✓ Empowers employees to use corporate resources to do good
✓ Formal CSR programmes → better morale & greater productivity
✓ Helps attract & retain customers — key to long-term success
✓ Customers may pay a premium knowing profits support causes they value
5 Principles of Csr
📌Some may matter more than others for a given organisation
1
Operate ethically & with integrity — a recognised code of ethical behaviour that everyone is expected to follow
2
Treat employees fairly & with respect — judged by employment policies: good working conditions, education & training
3
Respect basic human rights — e.g. no tolerance of child labour
4
Play a responsible role in the community — invest in local schools or hospitals; important in under-developed regions
5
Sustain the environment for future generations — reduce pollution of air, land, rivers, seas · sustainable business (resources replaced) · less oil & coal, more renewable (water, wind) · recycle waste
Examples of Socially Responsible Activities
🧪🌿
Environmental efforts
A primary focus of CSR; businesses of all sizes have large carbon footprints — reducing them benefits firm & society
🤝
Philanthropy
Donating money, products or services to causes & non-profits; best to consult them on needs first
⚖
Ethical labour
practices Treating employees fairly — especially where international
labour laws differ
🙋
Volunteering
Shows sincerity — good deeds
without expecting anything in return
Consequences of Unethical Behaviour
📌OVERALL Poor ethics → negative image, costs for the entity/executives, possibly bankruptcy or imprisonment. Acting ethically reduces risk.
① ILLEGAL / IN BREACH OF
REGULATIONS Risk of being ‘found out’ → fines, compensation to victims; directors may face imprisonment.
② LEGAL BUT ‘IMMORAL’ Risk of government action to make the conduct illegal.
③ ANY UNETHICAL ACT Exposure to reputational risk — e.g. accused of buying from child/slave-labour suppliers or polluting (Q12).
Managing Ethical Behaviour & the Corporate Code of Ethics
📌WHAT SHAPES CHOICES? People choose using their personal code of ethics, but at work are strongly influenced by co-workers & superiors (authority & example).
Organisations manage it by (Q16): educating employees · up-to-date info on issues · leading by example · formal & informal programmes
CORPORATE CODE OF ETHICS A formal written statement, available to all; guides all employees’ decisions. Most leading UK organisations have one. Effectiveness depends on leadership — directors & senior managers must be seen to comply. Culture drives behaviour; the code guides it.
FOR A CODE TO BE EFFECTIVE (4)
✓ Strongly endorsed from the top (Q14) — boards have overruled codes
✓ Training given — else staff may not know it exists
✓ Kept up-to-date
✓ Available to all (e.g. corporate intranet)
Code of Ethics for Chartered Accountants
📌GLOBAL BODY
IFAC >175 member & associate bodies · 130 countries & jurisdictions · ~3 million accountants
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ROLE
Issues high-quality ethics standards in the public interest Members encouraged to adopt high standards
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MEMBER
ICAP adopted IFAC’s Code of Ethics ICAP members must adhere to it
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WHY IT MATTERS
Public trust in financial reporting & reputation of the profession
The 5 Fundamental Principles
📌I
Integrity
honest & straightforward
O
Objectivity
no bias or undue influence
P
Professional competence & due care current knowledge; diligence
C
Confidentiality
protect information
P
Professional behaviour law; don’t discredit
Competence & due care has two parts: (i) attain & maintain knowledge and skill so clients/employers get competent service based on current technical & professional standards and legislation; (ii) act diligently in line with applicable standards.
Study Text Cases — Principle in Action
📌| Principle | Requirement | Study Text case | Result |
|---|---|---|---|
| Integrity | Straightforward & honest in all professional and business relationships | CA on an interview panel tells a candidate operations may take more than 2 months and he may accept his other offer — despite HR asking him to refuse it | ✓ Complied |
| Objectivity | No compromise of judgement from bias, conflict of interest or undue influence | Manager refuses the CFO’s instruction to pay the CFO’s brother (supplier) before the GRN is received | ✓ Complied |
| Professional competence & due care | Attain & maintain knowledge to current standards; act diligently | Senior finance manager (qualified 2016) still uses the 2016 edition of IFRS | ✗ Violated |
| Confidentiality | Respect confidentiality of information from professional & business relationships | Company secretary tells a friend of his Board-approved promotion before HR’s official notice | ✗ Violated |
| Professional behaviour | Comply with laws & regulations; avoid conduct that discredits the profession | Two rival CFOs lose their temper in a verbal altercation on national TV | ✗ Violated |
MEMORY AID — “I O P C P” “It’s Our Profession’s Core Principles” → Integrity · Objectivity · Professional competence & due care · Confidentiality · Professional behaviour (memory aid only)
⚠ SPOT THE CLUE Honesty/misleading → integrity · relative, pressure, bias → objectivity · outdated standards → competence · sharing private info → confidentiality · public misconduct → professional behaviour
Personal, Corporate & Professional Ethics — How They Connect
📌Built from Study Text points
| Level | PERSONAL ETHICS | CORPORATE CODE OF ETHICS | PROFESSIONAL CODE (ICAP) |
|---|---|---|---|
| Source | The individual’s personal code of ethics | The organisation — formal written statement | IFAC Code, adopted by ICAP |
| Applies to | The person, inside & outside work | All employees of the organisation | All ICAP members |
| Main influence | At work: co-workers & superiors (authority & example) | Leadership — directors & senior managers must comply | Public trust & reputation of the profession |
| Key content | Choice between right and wrong | Guidance on decisions & actions | 5 fundamental principles |
How This Chapter Can Be Tested
📌1 Definition / fill-in — ethics, business ethics, CSR — three near-identical definitions (Q1–Q3)
2 True / False scenarios — car dealer, bribery for a good cause, underage workers (Q4–Q6)
3 Best course of action — conflict-of-interest situations (Q7)
4 “Which is NOT…” — an advantage of CSR; a true statement; a consequence (Q9, Q11, Q13)
5 Identification — which of the 13 situations; which ICAP principle is breached
6 Code of ethics — what makes a code effective (Q14); what ICAP requires (Q15)
Exam Traps
⚠️1 Ethics vs business ethics vs CSR — Ethics = good & bad, moral duty; business ethics = right/wrong in the workplace; CSR = social, cultural, economic, environmental sensitivity.
2 Good cause ≠ ethical — Bribery is unethical even if funding ambulances (Q5).
3 Fake CSR — Underage workers below minimum wage is not social responsibility (Q6).
4 Repaired car — Must still disclose the accident — else a false impression (Q4).
5 Condoning — Tolerating others’ unethical acts is itself unethical.
6 Insider trading — Is a conflict of interest — material, non-public information.
7 Legal but immoral — Risk = government action to make it illegal — not fines (those follow illegal acts).
8 CSR advantage trap — CSR can help attract & retain customers — a statement saying it cannot is false (Q9).
9 Code of ethics — Must be formal written, endorsed from the top, trained, updated, available (Q14).
10 Most UK leaders — Most leading UK organisations have a code — not ‘very few’.
11 Objectivity vs integrity — Pressure / relative / bias → objectivity; honesty → integrity.
12 Competence — Using outdated standards (2016 IFRS) breaches competence & due care.
13 Confidentiality — Sharing Board decisions before official notice = breach, even with a friend.
14 ICAP requires — All five principles (Q15) — not just one.
Decision Tree — Analyse an Ethics Scenario
📌GENERAL BUSINESS SCENARIO
CHARTERED ACCOUNTANT SCENARIO
1
Is personal gain competing with duty to others? → CONFLICT OF
INTEREST
A
Misleading / dishonest statement? → INTEGRITY
2
Otherwise match the behaviour to one of the 13 SITUATIONS (false impression, hiding info, abuse…)
B
Bias, relative, pressure from superior? → OBJECTIVITY
3
Is it framed as helping society? Check against the 5 CSR PRINCIPLES (human rights, fair treatment…)
C
Outdated knowledge, careless work? → COMPETENCE & DUE
CARE
D
Disclosing information? → CONFIDENTIALITY
4
What’s the risk? Illegal → fines/prison; immoral → new law; any →
reputation
E
Discredits the profession / breaks law? → PROFESSIONAL
BEHAVIOUR
Don’t Mix the Csr Lists
📌Classification check
| List | 5 PRINCIPLES (what CSR requires) | 4 ACTIVITIES (what firms do) | ADVANTAGES (what firms gain) |
|---|---|---|---|
| Items | Ethics & integrity · fair treatment of employees · human rights · community role · environment | Environmental efforts · philanthropy · ethical labour practices · volunteering | Image & brand · employee empowerment · morale & productivity · attract & retain customers · premium pricing |
| Question clue | “an organisation should…” | “an example of socially responsible activity” (Q10) | “an advantage of being socially responsible” (Q9) |
MCQ Quick-clue Section
🎯All 16 Self-Test questions
“Discipline dealing with good and bad…”
›
Ethics (Q1)
“Moral principles… right, wrong in the workplace”
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Business ethics (Q2)
“Ethically, with sensitivity to social… issues”
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CSR (Q3)
Hide a repaired car’s accident
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FALSE (Q4)
Bribe for extra floors, buy ambulances
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FALSE (Q5)
Underage workers as ‘social responsibility’
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FALSE (Q6)
Cousin and HR vacancy
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Apply online, use referral (Q7)
Testing ethical decision-making
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Select only if mirror test cleared (Q8)*
NOT an advantage of CSR
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CSR cannot help attract customers (Q9)
Socially responsible activities
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Environmental efforts & volunteering (Q10)
NOT true
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Evidence for reputation risk is conclusive (Q11)*
Exposed to reputation risk
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Child-labour suppliers & polluters (Q12)
NOT key consequences: labour practices, conflict of interest
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None of the above (Q13)*
True of a code of ethics
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Strongly endorsed from the top (Q14)
ICAP code requires
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All of the above (Q15)
Reduce ethical risk by
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Educating & leading by example (Q16)
* Q8 (mirror test), Q11 (reputation-risk evidence) and Q13 rely on points not explained in the chapter body — learn the answer key as given.
Quick Memory Map
🧠| Concept | Key words | Core idea |
|---|---|---|
| Business ethics | right · wrong · workplace | moral principles for organisations |
| Ethical issue | choice · profit vs conduct | recognising it is the key step |
| Conflict of interest | personal gain vs duty · insider trading | most common issue |
| 13 situations | take · lie · mislead · hide · abuse · condone · time | behaviours to spot |
| CSR | balance profit & society · 5 principles | ethics + social sensitivity |
| Consequences | fines · new laws · reputation | acting ethically reduces risk |
| Code of ethics | written · top-endorsed · trained · updated · available | guides everyone |
| ICAP code | I · O · P · C · P | 5 fundamental principles |
Business — Business Ethics in 60 Seconds
⚡⏱ ETHICS & ISSUES
- Ethics: good/bad, moral duty
- Business ethics: right/wrong at work
- 6 behaviour areas; 13 situations
- Conflict of interest; insider trading
⏱ CSR & RISK
- CSR: ethics + social sensitivity
- 5 principles; 4 activities
- Illegal → fines/prison; immoral → new law
- Always → reputational risk
⏱ MANAGING ETHICS
- Educate, inform, lead by example
- Code: top-endorsed, trained, updated
- ICAP adopted IFAC Code
- I · O · P · C · P
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